Green bubbles in energy transition: speculative or genuine?

Focusing on so-called “green bubbles”, the study provides new empirical evidence on whether clean energy assets display speculative or euphoric behaviours relative to conventional energy investments. By combining bubble-detection techniques with energy-sector and financial data, the paper sheds light on the stability and risks of green investment-driven growth.

Proposing a systematic framework to identify, analyse, and forecast green bubbles

The rise in climate-related investments has revived concerns about the emergence of “green bubbles” and the risk of a future “Climate Minsky moment”. However, the existing literature often debates whether these phenomena should be interpreted as short-lived market exuberance or as “social bubble” processes that may generate positive societal outcomes. This paper addresses this gap by proposing a systematic framework to identify, analyse, and forecast green bubbles.

A four-stage paradigm for green bubbles

We propose a structured framework consisting of four phases:

1. Definition – distinguishing euphoric market behaviour from bubble processes within financial time series;
2. Detection – identifying bubble-like price dynamics in renewable energy markets;
3. Propagation – analysing how public climate narratives and attention amplify market bubbles and influence financial stability;
4. Forecasting – improving short-term predictions of green asset prices using narrative-based indicators.

This paradigm explicitly recognises that green bubbles differ from traditional speculative bubbles, as they are closely intertwined with climate policies, moral narratives, and technological transitions.

Data and methodology

The empirical analysis focuses on the RENIXX index over the period 2005–2024. Bubble detection relies on statistical models designed to identify speculative behaviours and bubble processes in asset prices. To capture narrative propagation, the study incorporates Google Trends search volumes related to climate, energy, and technology. Forecasting performance is evaluated using established econometric models.

Public attention, forecasting and narrative economics

The analysis identifies distinct bubble phases, including the Clean-Tech bubble and the more recent Climate bubble, both characterised by statistically significant euphoric dynamics. Public attention—proxied by search volume indices—plays a relevant role in propagating these dynamics. Importantly, narrative-driven variables significantly improve short-term forecasting accuracy, supporting the relevance of narrative economics in green financial markets.

Policy and financial stability implications

The results suggest that green bubbles are not merely signs of irrational speculation but may reflect a social bubble mechanism, accelerating investment and innovation during the energy transition. In a Schumpeterian sense, such episodes can be interpreted as a “necessary evil” of creative destruction, where temporary financial instability accompanies technological change and market reallocation essential for the ecological transition. Nonetheless, unchecked exuberance can still pose financial stability risks, calling for careful monitoring rather than suppression of green finance.

Key takeaways

Green bubbles are best understood as a by-product of innovation-driven transitions, shaped by climate narratives and policy signals. When properly governed, they can support the ecological transition; when mismanaged, they may generate instability. Distinguishing market exuberance from genuine bubble dynamics is therefore crucial for both investors and policymakers.

Read the full paper

Green bubbles: a four-stage paradigm for detection and propagation

Authors

Gian Luca Vriz

Research Fellow in Climate Finance, Nature Statistics and Data Science at the University of Edinburgh Business School

Professor Luigi Grossi

Professor of Economic Statistics at the University of Parma, Italy